An everyday tale of family and political life with a dollop of Formula One and various random thoughts on the side.

Thursday, January 27, 2011

Liberal Democrats highlight failures and unfairnesss of SNP's final budget

I spent much of yesterday listening to Scotland Questions, PMQs and the terrorism statement in the House of Commons yesterday, but unfortunately missed out on much of Holyrood's budget debate because I had to go out. I'm just catching up on it now.

I was quite amused by Linda Fabiani's outraged and defensive reaction to a simple question from our Robert Brown. All he did, when she was talking about the effect of the VAT increase, and implying how evil UK taxation was, was to ask what the rate of VAT was in independent Ireland.

That is typical. When they do not like what they are hearing, they start being nasty to other nations.

It was Robert and Jeremy Purvis who made the main speeches for the Liberal Democrats yesterday, highlighting the budget's failure to plan for economic growth, to tackle high pay in the public sector, to properly consider whether some measures such as concessionary travel, free prescriptions and free school meals for all were sustainable in the current climate and to deal with the concerns of the college sector.

For that reason, the Liberal Democrats have reserved judgement, abstaining in yesterday's stage 1 vote. In previous years our intervention has ensured more help for business and and extra 7500 college places and it's in those areas this time, as well as proper action on public sector high pay, that the party is looking to see improvements.

Jeremy Purvis outlined the key Liberal Democrat priorities:

We have set out our priorities—to create jobs, to ensure that every child gets a better and fairer start in life, to help business to grow, and to work against climate change. We have also indicated that we are prepared in the coming years to look at different choices when it comes to reforming the public sector landscape in Scotland.

Here, in some detail, is what Robert Brown and Jeremy Purvis had to say. I was particularly interested in Jeremy's rationale behind voting against the SNP's Tesco tax earlier in the day - you have to look at the whole context in which we operate, by the looks of it. We could get more money in Scotland, sure, but Tesco as a whole would end up paying less UK tax as a result and we'd all be poorer. Taxing a major company is always an option which looks attractive, to me as much as anyone, but the devil is in the detail, and you don't want to cut off your nose to spite your face. You're no better off if you rob George to pay John.

If large retailers’ profits are so huge and if their shoulders are so broad, why on earth does the SNP want to slash the corporation tax that they pay? Tesco paid £840 million in corporation tax at a 28 per cent rate in 2010. The SNP wants that rate to be 20 per cent. I do not know why on earth it wishes to give tax cuts of hundreds of millions of pounds to large retail companies.

Robert made a thoughtful contribution, drawing parallels between the Finance Secretary's job dealing with a reduced budget to our ministers finding the mess they did when they took over. He also returns to his earlier comparison with Ireland.

Without question, the budget debate takes place against a more sombre economic background than any that we have known for many years. When the United Kingdom Government came to office last May, it inherited the worst fiscal deficit since the war. It is undoubtedly true that my Liberal Democrat colleagues in London have received extraordinary abuse for the actions that they have taken in the national interest since then. More than any, we know that Opposition is an easier place than Government. We know too that the previous Labour Government, which presided over the circumstances that led to the banking crisis, ducked many of the hard choices. The total cost to the economy of the banking crisis is estimated at between £1,700 billion and £9,000 billion, according to Bank of England figures

Before the forthcoming financial year, the SNP Government has not required to make cuts because of the recession. For all the huffing and puffing about independence and fiscal autonomy, and despite their dodgy dossiers about easy and automatic growth under full fiscal autonomy, SNP ministers are—privately—hugely relieved that the UK Government had to bail out and rescue the Scottish banks and that they have the stability of the Barnett formula to buttress the Scottish budget at this difficult and volatile time.

The downside is that one could be forgiven sometimes for having the impression that the SNP lives in a parallel universe in which public debt grows on trees and does not have to be repaid and in which the recession and the banking crisis affect faraway countries of which we know little, as with independent Ireland, whose problems Jim Mather thinks are caused by an incompetent Government.

Independent Ireland, which has a large banking sector, provides a mirror for our situation. Of course, the SNP Government always drew it into evidence in previous years. Ireland does not have the critical mass of the UK’s economy and resources or a stable coalition Government to deliver a recovery plan over four or five years. It probably brings a wry smile to the cabinet secretary’s face that the Irish Government depends on a bunch of erratic and unreliable Greens. The Irish public have had public sector cuts, job losses, wage cuts, emergency tax imposts and VAT at above UK levels. They now have hugely unhelpful political turmoil and uncertainty, and the Irish fiscal crisis still threatens not only Ireland’s future but the euro zone’s stability.

Having set out the context, he then turned to the practicalities of the Budget offered by John Swinney:

My first criticism, in suggesting that the budget does not match up to the challenge, is one that the Finance Committee made.The Scottish Government rides two horses. It must ask the question that the Finance Committee asked: is the primary aim of the draft budget the protection of services, in particular universal services, or is it economic growth? I accept that there is an overlap in that regard, but the priority needs to be to grow the Scottish economy.

In that context, the Scottish Government seems to be insufficiently focused on creating skills, providing opportunities and equipping enough of our young people with what they need if they are to march forward into the future with confidence. That is particularly the case in relation to colleges.

There is common ground between Liberal Democrats and members of other parties in the Scottish Parliament, who have been critical of the extent to which benefits such as prescription charges and free school meals have been the main direction of the Scottish Government’s policies. If we spend money on certain things we cannot spend it on other things.

Scotland’s Colleges identified a cut of £48 billion, or 10.4 per cent, in colleges’ budgets, at a time when investing in skills and young people should be central—[Interruption.] There might be issues to do with budgets, but that is what Scotland’s Colleges, which is in a position to know something about the issue, said. For Liberal Democrats the issue was a priority that we pushed with the Government in the context of last year’s budget. That resulted in funding for a further 7,500 places. The issue remains a priority and something of a litmus test for us this year. There is also a significant issue to do with stretched budgets for college bursaries.

He concluded that:

Much of the budget spend is welcome. Support for schools and young people, doctors, hospitals and the sick, and central and local government services could scarcely be anything but welcome. However, the cabinet secretary has a distance to go before stage 3 if he is to satisfy Liberal Democrats that his priorities are the right ones and his budget is a budget for Scotland and for our young people.

Jeremy was quite feisty. He can share Mike Moore's habit sometimes of being a bit too quiet and serious, but he had some fire in his belly yesterday.

As it stands, this budget fails the test that the Government itself set, which was to grow the Scottish economy. That was supposed to be the Government’s single purpose—indeed, it added a capital P to the word “purpose” in all its literature, giving it a somewhat theological emphasis. That purpose, which we and most parties in the Parliament shared, has now gone.

The Finance Committee was clear—it could not have been clearer—that the purpose was not being met, and was not being matched by the spending priorities in the budget. The committee went further still in its report, which calls for more information before stage 3. The report also asks why the strategic priorities have changed, and whether the Government carried out an assessment of the impact of its previous priorities on its purpose before that purpose was changed to the current one.

There is no question about the fragility of the Scottish economy, or about the fact that we can look across the Irish Sea to see close at hand a situation that could potentially be replicated in Scotland if wrong decisions are made here. There is also no question but that we must tackle a structural deficit that could choke spending on public services for the next generation unless we handle it properly. We are spending as much on servicing the structural debt interest alone as it would cost to build a primary school in Scotland each day of the week.

When the Chinese delegation was in Scotland recently, it was interesting to note that the Chinese Government has bought more UK debt than the entire amount of trade deals signed with that country, not just in Scotland but across the UK, over the past year. There is no question but that our own business community has subdued confidence, and no question but that the pipeline of construction projects, which had already withered under the SNP when budgets were growing, is now in a dangerously low state.

On business anger and frustration with the SNP

The Government has tried to spin that the budget contains a revenue stream of financing that will build new infrastructure, but the same Government scrapped those schemes when it came into office. I met businesses in the construction industry recently and I do not need to make up that there are real anger and emotion, because they were palpable. One business said to me that the real crime was not that the SNP got rid of the public-private partnership approach but that nothing was put in its place. The Government accepts that the pipeline of projects has slowed. That is why the SNP is asserting that it is building as much as the previous Government, but that is clearly not the case. The growing gap between the SNP’s assertions and reality is becoming clear.

On high pay in the public sector:

We find it difficult to accept that, at a time when NHS workers who earn less than £21,000 will get an increase of just £250 and people who are on £21,000 or above will have a freeze in their pay, consultants, who are among the top-paid people in the NHS, will still be able to nominate themselves for a £70,000 annual bonus. We do not think that that is fair or appropriate. We heard the cabinet secretary mention those who have the broadest shoulders. I think that people who earn over £100,000 have broad shoulders. I do not think that it is right that, in the past year, when the Government has claimed that it has put punitive measures in place, that pay bill has gone up by £53 million. That is not fair, and it is not those with the broadest shoulders who are taking the most responsibility. We also believe that the prescribing bill in the NHS is spiralling too much, with reduced health outcomes.

Pointing out how much money the SNP had given to "broad shouldered" Tesco:

If such companies’ shoulders are so broad, I am surprised by how much the SNP Government has given Tesco in regional selective assistance grants in the past three years. It was given £1.7 million for Tesco Bank in October 2010. In Joe FitzPatrick’s area—Dundee—Tesco was given £1.25 million. The most striking grant was for the Tesco Bank headquarters in Edinburgh in June 2009. Alex Salmond opened the headquarters, which came with a £5 million RSA grant. The money that the large retail levy will raise will probably cancel out the grants that the SNP Government has given Tesco

We shall have to see if Swinney is in a listening mood, and willing to make changes before the final stage 3 debate. Will we have the drama of 2009 or will a consenus be achieved in time?